China’s Regulation on
Telecommunication Service Tariff
Teleinfo Institute, CATR of MIIT
April 26, 2010
Content
Introducing competition and reform on tariff regulation
Current regulation policies on tariff
Decline of service fees and increase of user’s benefits
International comparison of service tariff
2
Introducing effective competition
Phase 1
1994-1997
▪ Introducing of competition
▪ Establishment of China Unicom in 1994
▪ Separating government functions from enterprise management
Phase 2
1998-2001
▪ Separating post from telecommunications
▪ Separating China Mobile from China Telecom, restructuring of
China Telecom, introduction of other 3 competitors
Phase 3
▪ Restructuring China Telecom and other two operators into
China Telecom and China Netcom
2002-2007
▪ Total 6 telecom operators in the market by the end of 2002
Phase 4
2008--
▪ Restructuring 6 operators into 3, China Telecom, China Mobile
and China Unicom
▪ Launch of three 3G licenses
3
Introducing effective competition
General
Bureau of
Telecom
China Tietong
1999
China Tietong
2002
China Mobile
1999
China Mobile
2002
China Satcom
1999
China Satcom
2002
China Telecom
1999
China Telecom
2002
China Jitong
1999
China Netcom
1999
China Unicom
1994
China Mobile
2008
China Telecom
2008
CDMA
Networks
China Netcom
2002
China Unicom
2002
China Unicom
2008
4
Reform on tariff regulation
The direction of
tariff reform
▪ Form a mechanism that service tariffs are decided by market
competition
▪ Protection of consumers’ right and promote consumer welfare
▪ Maintenance of fair competition
Before 1995
▪ All the service fees
were set by the
government
1995-2002
▪ After introducing
competition:
▪ Government pricing
▪ Government guiding
prices
▪ Market pricing
2002-present
▪ Telecommunication fees
becoming more market-oriented,
most service charges are
decided by enterprises
▪ Price cap regulation on some
basic telecommunication
services since 2005
5
Content
Introducing competition and reform on tariff regulation
Current regulation policies on tariff
Decline of service fees and increase of user’s benefits
International comparison of service tariff
6
Price cap regulation
2005
2009
Services
under price
cap
regulation
▪ Domestic long distance
▪ Fixed connection
▪ International long distance
▪ Fixed Intra-LATA call
▪ Domestic mobile roaming
▪ PHS connection fees
▪ Fixed Inter-LATA call
▪ PHS local call rates
▪ A decision in 2008 reduced the price cap of domestic mobile
roaming, from 1.3-1.5 RMB/minute to 0.6-0.4 RMB/minute, telecom
Adjustment
operators could set their own tariff standard under this price cap
of price cap
▪ Since 2006, provincial telecom regulators have gradually reduced
the price cap of fixed inter-LATA call from 0.5 RMB/minute to 0.2-0.3
RMB/minute
7
Contents
Introducing competition and reform on tariff regulation
Current regulation policies on tariff
Decline of service fees and increase of user’s benefits
International comparison of service tariff
8
Decline of service fees
Continuous decline in mobile communications tariff
0.35
0.30
▪ The integrated tariff of mobile
0.25
communication was on a
0.20
continuous decline since 2004
0.15
▪ In 2009, integrated tariff of
0.10
China Mobile is 0.16 RMB/minute
(about 0.023 US dollar)
0.05
0.00
2004
2005
China Mobile
2006
2007
China Unicom
Source: telecom operators’ annual reports
2008
2009
China Telecom
9
Decline of service fees
Decline of fixed domestic long distance rates
0.3
Decline of mobile domestic long distance rates
0.70
0.27
0.63
0.25
0.23
0.58
0.60
0.22
0.53
0.21
0.2
0.50
Chinese Yuan
Chinese Yuan
0.25
0.40
0.15
0.35
0.30
0.26
0.25
2008
2009
0.1
0.20
0.05
0.10
0
0.00
2005
2006
2007
2008
2009
2004
2005
2006
2007
▪ Both fixed and mobile domestic long distance call rates were declined in the past 6 year,
mobile domestic long distance tariff drop faster than fixed
Source: Teleinfo estimates
10
Increase of user’s benefits
Fixed and mobile phone penetration
▪ the decrease in service fees
90%
79.9%
74.3%
80%
69.4%
70%
60%
57.3%
56.3%
48.5%
50%
35.3%
25.9%
20%
24.9%
rapid increase since 2004.
30.3%
27.0%
28.1%
services
▪ mobile penetration was on a
41.6%
40%
30%
people to use telecommunication
63.4%
50.8%
made it affordable for more
27.8%
reached 56% by the end of 2009
25.8%
23.6%
10%
▪ fixed penetration has slightly
decreased because of FMS while
0%
2004
2005
2006
total
Source: MIIT
fixed
2007
mobile
2008
2009
total telephone penetration rate
reached almost 80% in 2009
11
Increase of user’s benefits
Increasing of usage (mobile MOU)
Decreasing of expenses (mobile ARPU)
500
90
433
450
434
80
405
76
75
70
353
315
64
60
287
Chinese Yuan
300
77
70
400
350
79
250
200
50
40
30
150
100
20
50
10
0
0
2004
2005
2006
2007
2008
2009
▪ the decrease in tariff aroused the
consumption of telecommunication services
even if the new users are generally low-end
Source: estimates based on telecom operators’ annual reports
2004
2005
2006
2007
2008
2009
▪ while the usage of services increased,
users spent less on telecom services
12
Content
Introducing competition and reform on tariff regulation
Current regulation policies on tariff
Decline of service fees and increase of user’s benefits
International comparison of service tariff
13
Low price in telecommunication services in China
Fixed call
rates
▪ The price cap of fixed local call is:
▪ 0.18-0.22 RMB (0.026-0.032 US dollar) for the first 3 minutes,
0.09-0.11 RMB/minute (0.013-0.016 US dollar) after that
▪ For example, even if in a high price level city such as Beijing, a
common mobile service package could be:
Mobile
call rates
▪ 10 RMB (1.46 US dollar) usage fee per month include:
▪ 60 minutes of local initiative calls, caller ID services and free for
incoming calls
▪ that is less than 0.16 RMB/minute (0.028 US dollar) on average
14
Tariff comparison between BRICs and developed
economies in the consideration of purchasing power
Mobile tariff comparison
Fixed tariff comparison
China
▪ call rates per minute/GNI per capita
Russia
Brazil
India
United France Germany Australia
Kingdom
▪ 3 minutes call rates/GNI per capita
▪ Taking into account the influence of purchasing power, telecommunication service tariffs are
lower in developed countries than developing countries
▪ China’s telecommunication tariff is lower than India and Brazil in BRICs
Source：Informa
15
Tariff and economic level are strongly related
▪ When considering
purchasing power:
mobile price basket as % of GNI per capita
12
▪ Telecommunication
service tariffs are lower in
developed countries such
as OECD countries
10
8
▪ China’s tariff level is
lower in the countries with
the same level of GNI per
capita
6
4
China
OECD Countries
2
0
0
20000
40000
60000
GNI per capita
Source：ITU
80000
100000
▪ In the future, with China’s
economic growth,
telecommunication service
tariff will account lower %
in GNI per capita
16
THE END
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